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Establishing International Schools in China: Part 3 – A Deeper Dive (Continued)
This is part 3 of my four part series on establishing an international school in China. In part 1, Establishing International Schools in China: The Basics, I discussed the complications foreign parties typically see when trying to start a school in China. In part 2, Establishing International Schools in China: A Deeper Dive, I focused on what it takes to start a School for the Children of Foreign Workers. 
In this post, I will be discussing Sino-Foreign Cooperative Schools and Chinese Private Schools.
But before I do, I will reiterate that establishing a School for the Children of Foreign Workers is either not suitable or unworkable or just not possible when any of the following are true of the parties involved:
- They want to provide a university level education
- They want to open a training school
- They want the Chinese party to have equity in the educational entity
- They want the Chinese party to legally control the entity
- They want the school to serve Chinese students.
Sino-Foreign Cooperative School. In 1995, the Ministry of Education published the PRC Guidelines for Running a Sino-Foreign Cooperative School (中华人民共和国中外合作办学条例). The main purpose of the law, which was updated in 2003, was to boost the development of quality private schools in China by recognizing the need for foreign education partners invest their intellectual property and expertise.
A Sino-Foreign Cooperative School is essentially a joint venture between a recognized foreign education entity and a Chinese entity. Although education is a restricted area of foreign investment, Sino-Foreign Cooperative Schools can actually be foreign-majority owned and can have up to half of the seats on the governing board held by the foreign entity. Note that the equity component held by the foreign party in the school cannot usually consist of more than 1/3 of the total possible equity.
The legal representative of a Sino-Foreign Cooperative School can also be a foreigner. However, the president of the school must be a Chinese national. In practice, the Chinese partner will usually insist on controlling the entity and on majority control of the board since they typically provide the land for the school and a significant amount of the money needed to get it going.
The Chinese party’s land investment is what usually makes Sino-Foreign Cooperative Schools an attractive structure for establishing an international school in China. Land zoned for schools is difficult to obtain in China, and having the Chinese partner undertake this as their responsibility can be the key to a project’s success. The foreign party primarily contributes the IP and, in some cases, a financial investment. Disputes about the value of each party’s contributions and getting a clear understanding of the implications of the ownership share ratios often stalls efforts to establish Sino-Foreign Cooperative Schools.
In our role as lawyers representing the foreign party in these deals, our main role is usually to help the American (or other foreign) educational institution negotiate a satisfactory administrative and financial power sharing arrangement for the possible new school.
A Sino-Foreign Cooperative School can serve students of any age and nationality, although the law makes clear that secondary, university and training school collaborations for Chinese students is what is being encouraged. NYU’s campus in Shanghai is a good recent example of a Sino-Foreign Cooperative School.
Quite a few secondary (high school) Sino-Foreign Cooperative Schools have also been established in the last few years. These schools are typically connected with an American or European secondary school, and they can offer both an international (often the Internal Baccalaureate) and a Chinese diploma. Both foreign and Chinese students can attend, provided they meet the particular school’s admissions standards. Some of these schools are connected in some way to existing Chinese private schools, and they often have dorms for attending students. These schools can also be branded as an “International School” or a “Bilingual School.”
The Sino-Foreign Cooperative School regulations do not completely address the important issue of whether investors can receive future profits on their investment, nor, if so, how exactly they can do so. Income received by the school is required to be used exclusively for the school. In light of this lack of clarity, investors will typically form a separate company to charge royalties or other service fees to the school, making a return on their investment that way. Some recent draft regulations seem to indicate that the government is warming to the idea of for-profit schools. If these modifications are confirmed, they will likely provide clearer guidelines on how to handle the issue of investor returns.
Chinese Private School. A Chinese Private School (民办学校) is simply a Chinese investor wholly-owned school, serving mainly Chinese students. It is not surprising to find these schools located within the investor’s own property development. The main difference between these schools and China’s public schools is that these private schools often work to infuse some foreign or other higher-level education standards into their curriculum. These schools often emphasize English or another foreign language or a well-funded arts program. Some even offer of US high school Advance Placement classes at the secondary level. Dorm housing is also usually available.
These schools can also be branded “International Schools,” though it is more common to see them branded as a “Bilingual School” or an “Experimental School.”
In my final post in this series, I will look at some of the future trends relevant to establishing international schools in China.
We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.
Source: http://www.chinalawblog.com/2015/02/establishing-international-schools-in-china-part-3-a-deeper-dive-continued.html
